Haverty’s Builds a Stock-to-Pick Case

by Louis Navellier | April 19, 2012 2:15 pm

Haverty’s Builds a Stock-to-Pick Case

Home sales are on the rise again, and that means that home buyers will be looking for new furniture and decorations to outfit their new lodging. That’s great news for companies like Haverty Furniture (NYSE:HVT[1]), which is a full-service home furnishings retailer.

Let’s take a look at the opportunities for investors at Haverty.

Company Overview: 125 years ago, a single Haverty’s opened in downtown Atlanta and distinguished itself through its quality furniture and quick delivery of goods. Since then, the company has expanded to 100 stores across 17 states, and employs over 3,000 people nationwide. Today, Haverty’s sells middle-to upper-range furniture and offers furniture to outfit every room in the house, including home offices and media rooms.

Industry Breakdown: There are seven major home furnishing stores, and in an industry that includes big names like Bed Bath & Beyond (NASDQ:BBBY[2]), Williams-Sonoma (NYSE:WSM[3]) and Pier 1 Imports (NYSE:PIR[4]), Haverty’s is the second smallest.

Unfortunately, this company also ranks towards the bottom in terms of several fundamental metrics, including sales growth (sixth), earnings growth (fifth), return on equity (sixth) and long-term growth rate (fourth).

However, Haverty’s does shine in terms of its Price/Earnings to Growth ratio, which is the highest in the industry. This company’s main competitors are Ethan Allen (NYSE:ETH[5]) and Furniture Brands International (NYSE:FBN[6]); of these three company’s Haverty’s has the second highest gross margin, operating margin and sales growth.

Earnings Buzz: We still have quite a bit of time before Haverty Furniture’s next earnings announcement, which is tentatively scheduled for May 28. Currently, analysts expect the company to grow sales by 6.1% and earnings by a whopping 266.7%. By comparison, the rest of the industry is headed towards a -4.9% profit loss.

In the past month, analysts have upwardly revised their estimates by 25%; this is predicative of an earnings surprise. What’s interesting about Haverty Furniture is that it has a history of significant earnings surprises and misses. In the past two quarters, the company has missed estimates by 75% and 43% respectively, but in the prior quarter, it beat estimates by 71%. In any event, this should be an exciting earnings announcement.

Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader[7] ratings system. Over the past 12 months, this stock just hasn’t been able to break into buy territory. Recently, HVT was upgraded from a sell to a hold, but there is still plenty of room for improvement.

To start, this company’s fundamental metrics are all over the map. On the one hand, Haverty Furniture is sturdy in terms of operating margin growth, earnings growth and it has a steady history of analyst earnings revisions and surprises. On the other hand, this company’s sales growth, cash flow and return on equity are quite weak.

And, to top it off, buying pressure for this stock has been mediocre for some time now. HVT earns a B for fundamentals and a C for its Quantitative Grade, so this is a C-rated stock overall.

Bottom Line: Because this stock earns a C-rating, I recommend that you hold off on buying HVT for now.

Recommendation: Hold

Sound Off: What do you think about HVT? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook[8].